SEC Chairman William Donaldson abruptly announced on June 1 that his last day on the job will be June 30. Industry observers have speculated since late last year that Donaldson would resign his post sometime in 2005, but no one anticipated such an early departure. On June 2, President Bush nominated Rep. Christopher Cox (R-CA) to replace Donaldson, calling the California congressman ” a champion of the free enterprise system in Congress.”
At a press conference at the SEC on June 1, Donaldson said his departure had nothing to do with disagreements among board members. A Republican, Donaldson has voted with the two Democratic board members, Roel Campos and Harvey Goldschmid–to enact two very contentious rules, the mutual fund independent director rule, and the hedge fund registration rule. The two Republican commissioners, Paul Atkins and Cynthia Glassman,opposed both rules.
In his resignation letter to President George Bush, Donaldson said that during his two and a half years as chairman, the SEC has been “the most productive since its founding in 1934.” But given “some of the issues” the SEC faces, he told members of the press, he believes it’s time to “drift off into the private sector.” Donaldson has faced increasing criticism from the White House and the business community over what they considered his heavy-handed regulatory style.
When asked what he believed were some of the most important actions taken during his chairmanship, Donaldson first noted hedge fund manager registration. The hedge fund business is a “$3 trillion industry that wasn’t being regulated at all,” he said. Asking hedge fund managers to register with the commission is a “benign way to regulate the industry,” he argued, stating that the SEC “wants to get the most fundamental knowledge about the industry.” An independent hedge fund firm is now suing the SEC over the ruling. He also pointed to the mutual fund reform rules, as well as regulation National Market System (NMS), which he called a “hugely important” rule. He also applauded the revamped managerial structure of the SEC as well as the commission’s new risk management approach. Important issues that have yet to be finalized, he said, are disclosure of executive compensation and a reinterpretation of the 1940 Securities Act, which is under way.
Donaldson’s departure at the end of June, along with Goldschmid leaving at the end of July, leaves a number of proposals hanging in the balance. Form ADV Part II, soft dollars, and e-mail retention guidance have yet to be finalized, but are “very ripe” at the staff level, says David Tittsworth, executive director of the Investment Adviser Association in Washington, though he notes that “the staff doesn’t vote.”
In his comments at the White House following his introduction by President Bush, Cox called the SEC “one of the best run agencies in the federal government.” Cox is the chairman of the House Homeland Security Committee and has represented Orange County, California, in the House since 1988. He served in the Reagan Administration as a senior associate counsel to the President, and is a Harvard Business School and Harvard Law School graduate.